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We May Not Be as Ethical as We Think We Are

6/28/2018
By
Jeffrey M. Kaplan

Photo: iStock

Judge Learned Hand famously said: “The spirit of liberty is the spirit that is not too sure that it is right.” Many believe it was a profound statement. But what — if anything — does it have to do with ethics?

It may be very relevant, if one credits the research findings of various behavioral ethicists showing that we are not as ethical as we think, and so should be not too sure that we are right in these matters.

Behavioral ethics research looks at the reasons people make ethical — or unethical — decisions. It has shown that it’s not as simple as knowing right from wrong. Most people are subject to powerful influences, such as peer pressure, organizational norms and internal biases that can cloud their ethical compasses.

A book by business school professors Max H. Bazerman of Harvard and Ann E. Tenbrunsel of Notre Dame, Blind Spots: Why We Fail to Do What’s Right and What to Do about It, provides an excellent and comprehensive resource on this topic. This and other behavioral research offers a number of findings worth considering.

One is that the act of doing good can “morally license” doing something bad later on. This is strikingly counterintuitive, but there is a lot of data behind it. It certainly supports the broader notion that we are not as ethical as we think.

Perhaps surprisingly, researchers have also found that disclosing a conflict of interest can actually increase the likelihood of conflict-driven harm occurring. This is contrary to the received wisdom on the importance of disclosure of conflicts.

Additionally, various facets of everyday work life can contribute to “ethical fading,” which diminishes dimensions in decision-making. One of these is the process by which ethically fraught choices are deemed “business decisions,” magically removing them from the realm of scrutiny. Moreover, “outcome biases” can permit us to ignore bad decision-making if it happens to lead to desirable results, which can encourage future bad decision-making.

Another finding: power really does corrupt. Understanding this phenomenon can be valuable, particularly in dealing with powerful people in an organization who may tend to resist the notion that they can be the source of out-sized risk and thus should be the subject of heightened compliance measures.

"Most people are subject to powerful influences, such as peer pressure, organizational norms and internal biases that can cloud their ethical compasses."

Another set of circumstances that can lead to an ethical shortfall is where we do not know who may be impacted by a contemplated act. This has been called the phenomenon of “victim distance.” As Ben Franklin said: “There is no kind of dishonesty into which otherwise good people more easily and more frequently fall than that of defrauding the government.” It can be psychologically easier to engage in crime in a business setting where everyone is the victim — so it may feel like no one is.

There is also a strong tendency to over-discount the future, which can have serious implications when it forces others to pay for one’s own mistakes. Economists have for many years studied a phenomenon called “moral hazard” which concerns the harmful impact that can arise from the imperfect alignment between risks and rewards. A stark example of this emerged from last decade’s financial crisis, when one financial analyst — in discussing with another their roles in giving strong ratings to weak companies — said, “Let’s hope we are all wealthy and retired by the time this house of cards falters.”

Due to “conformity bias,” individuals are more likely to act unethically where their peers do. While not a surprise, this insight can be useful for those in companies tasked with identifying and mitigating risk.

Moreover, certain environments can lead to “bounded ethicality.” In one fascinating study, individuals who were told that they were wearing counterfeit sunglasses were more likely to cheat than those who were told that their sunglasses were genuine.

Another phenomenon known as “motivated blindness” contributes to not noticing others’ wrongdoing, depending on the observers’ interests that could be impacted by the misconduct at issue. A typical case of this sort would be where a highly valued employee engages in wrongdoing and management must decide whether he or she should be fired given the cost to the business of doing so.

Additionally, pressure to produce business results can lead otherwise ethical individuals to cross legal lines. This was illustrated dramatically in the recent, high-profile Wells Fargo fraud case, where apparently more than 5,000 employees were involved in the wrongdoing — a huge number that cannot be written off to the occasional “bad apple” explanation.

In light of these findings, it seems fair to say that at least part of the spirit of ethics is the spirit that is not too sure that it is right. This recognition has implications for how companies should conduct risk assessments, train their employees, provide means and encouragement for those with knowledge of wrongdoing to “speak up,” and use other compliance measures to ensure that they do business honestly.

Jeffrey M. Kaplan is a partner at Kaplan & Walker LLP (www.kaplanwalker.com), a law firm specializing in handling compliance and ethics matters. He can be reached at jkaplan@kaplanwalker.com.

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